This blog comes from Colorado firm Higgins, Hopkins, McLain & Roswell. Our goal is to use this blog as a means by which to share news and updates regarding construction litigation in Colorado. While we specialize in litigation of complex construction claims, including construction defect matters, we also use this blog as a platform to share thoughts and ideas regarding risk management strategies that can be implemented to minimize the risk of construction related claims.

Wednesday, May 22, 2013

In Re Golba: The Knaubs v. Golba and Rollison, Debtors - Revisited

Roughly a year ago, this blog
reviewed a bankruptcy court order finding an individual’s, Greg Rollison
(“Rollison”), debt was non-dischargeable.
The court found Rollison made false representations under § 523(a)(2)(A)
to Kelvin and Holly Knaub (the
“Knaubs”), knowing such representations to be false, with the intent to deceive
the Knaubs into believing a replacement house would be built for them. While the court did not find the corporate
veil should be pierced in the case, it did find that Rollison made personal
representations on which the Knaubs relied.
In the end, the court ruled that the Knaubs suffered damages, in an
amount to be determined later, arising from problems with a defective home. Thus, as to Rollison, the Knaubs’ debt was
found nondischargeable under § 523(a)(2)(A).

The United States Bankruptcy Court
in Denver, Colorado, through the Honorable Michael Romero, recently ruled on
the damages Rollison owes to the Knaubs.
Among the damages to be determined were pre and post-judgment interest
as well as attorney’s fees and costs.
The court found neither pre-judgment interest nor attorney’s fees were
appropriate, but post-judgment interest at statutory rate and the Knaubs’ costs
should be awarded.

The facts bear a quick review.In May 2003, the Knaubs purchased a home from
Gemm Homes (“Gemm”), which was owned by Robert Golba (“Golba”) and which
employed Rollison.Gemm was in financial
trouble and transferred some of its assets to Avalon Homes (“Avalon”), primarily
run by Golba, but also employing Rollison.Once foundation issues with the Knaubs’ home were identified, Rollison,
around May 1, 2007, made representations to the Knaubs that he would be able to
construct a new home for them.The court
found Rollison made false representations because he represented he possessed
the ability, through other projects, to build the Knaubs a new home.

The Knaubs sought entry of a judgment
for non-dischargeable amount of $162,000, plus attorney fees and costs,
pre-judgment interest at the rate of 8% per annum from May 1, 2003 through May
15, 2012, and post-judgment interest at the rate of 8% per annum.Rollison did not oppose post-judgment
interest and did not challenge the underlying principal amount of $162,000,
calculated pursuant to Mascio v. Gronewoller (In Re Mascio), 454 B.R.
146 (D. Colo. 2011).Rollison did oppose
any awards for pre-judgment interest and attorney fees and costs.

The court briefly discussed the
calculation of the underlying non-dischargeable debt of $162,000.Pursuant to Mascio, the court calculated
the difference between the actual value of the Knaubs’ home with its defects on
the purchase date, and the purchase price for the home without defects to be
$162,000 as stipulated to by both parties.

Next, the court discussed post-judgment
interest and found it appropriate. However, the court found that 28 U.S.C. §
1961(a) allowed the interest to run at a different rate.Therefore, instead of the 8% per annum the Knaubs
requested, the court found that post-judgment interest would run at the federal
judgment interest rate under 28 U.S.C. § 1961. The interest under the federal statute is
calculated at a rate equal to the weekly average one-year constant maturity
Treasury yield for the calendar week preceding the date of the judgment.

The court’s finding regarding
pre-judgment interest was a bit more involved as it had to first determine
when, if ever, there was any money or property wrongfully withheld.In Goodyear Tire & Rubber Co. v.
Holmes, 193 P.3d 821 (Colo. 2008), the Supreme Court of Colorado stated
that “wrongfully withheld” means the aggrieved party lost or was deprived of
something to which it was otherwise entitled.The court was quick to distinguish the fact that the date when something
is “wrongfully withheld” is not necessarily the same date as when a party is
“wronged” and cannot be before a party is “wronged.”

The Knaubs were seeking to get the date
of their initial purchase of the house, May 1, 2003, established as the date
the $162,000 they were owed was “wrongfully withheld” to begin the running of
the pre-judgment interest.In the
alternative, the Knaubs argued that the May 1, 2007, when Rollison made his
representations should be the date when pre-judgment interest should begin.The court found the Knaubs were not wronged
until the date Rollison made his representation, thus pre-judgment interest
would not start on May 1, 2003.Thus,
the pre-judgment interest would run from when, if ever, Rollison “wrongfully
withheld” money or property in connection with his misrepresentation.

The court reviewed the evidence
presented by both parties and found that neither party provided a date or a
time frame for when the replacement home Rollison promised was to be
built.Thus, without a definite date,
the court could not find that pre-judgment interest could accrue from the date
of Rollison’s representation on May 1, 2007.The court was also persuaded by the fact that there was no written
contract for the replacement home between the Knaubs and Rollison, and the
Knaubs were not out-of-pocket for any repairs costs.Thus, the Knaubs were not able to recover
pre-judgment interest under C.R.S. § 5-12-102(1).

The attorney fees the Knaubs sought were
also dismissed, largely because of the lack of contract between Rollison and
the Knaubs.The American Rule maintains
that attorney fees must be provided for by statue or within a contract
document.Along with the fact that no
contract exists between the parties, no statute which governs the case provides
for attorney fees.However, the Knaubs’ complaint
requested an award under § 523(a)(2)(A), plus costs, and the Fed. R. Bankr.P.
7054(b) does provide for costs to the prevailing party.The court then found that an award of costs
was appropriate based on the facts of the case. In the end, Rollison is facing a
judgment of $162,000 plus whatever costs the Knaubs incurred and any
post-judgment interest – a heavy nondischargeable debt.

For additional information regarding Colorado
construction litigation, please contact David M. McLain at (303) 987-9813 or by
e-mail at mclain@hhmrlaw.com

No comments:

Post a Comment

Disclaimer

The information contained in this blog is provided for informational purposes only. It is not legal advice and should not be construed as providing legal advice on any subject matter.

About the Firm

Higgins, Hopkins, McLain & Roswell exists to embody and exemplify the principles of service and stewardship. In everything we do, we focus on serving our clients selflessly and to the best of our ability. In doing so, we always have in the forefront of our minds our obligation to act as the stewards of our clients’ trust, confidences, and resources. We are highly regarded for our expertise in construction law and the litigation of construction claims. We represent a wide variety of clients, from individuals, to small businesses, to Fortune 500 companies.